ECOFIN Agrees On Savings Tax Directive

The European Union's (EU) Economic and Financial Affairs Council (ECOFIN) has reached an agreement on a mandate to allow the European Commission to negotiate amendments to agreements under its Savings Tax Directive.

Tax Commissioner Algirdas Šemeta confirmed following the meeting that, after two years of discussions, ministers have now agreed to give the Commission the go-ahead to launch talks with Switzerland, San Marino, Andorra, Lichtenstein and Monaco. Describing the decision as a breakthrough, Šemeta stressed that he was "ready to proceed with these negotiations with full speed and high ambition." He believes that "greater cooperation and transparency in taxation between the EU and these countries can return billions to the rightful treasuries."

The Commission first adopted an amending proposal to its Savings Tax Directive in November, 2008. The aim was to close existing loopholes, better prevent tax evasion, and ensure the taxation of interest payments channelled through intermediate tax-exempted structures.

These reforms will now be discussed at next week's meeting of the European Council. The deferral disappointed Šemeta, who said that a deal had been blocked on the basis that progress with third countries must be made first. He is convinced that this "is too important an instrument to neglect any further," and that a "stronger Savings Directive is crucial for all Member States to better identify and chase up evaders within the EU."

Šemeta hopes that the situation will be rectified, warning that effective change will only come if the EU's "own house is fully in order." His comments echo those made in a letter from UK Chancellor to his fellow ministers, published ahead of the meeting. In it, George Osborne claimed that: "Unless Europe can show it can agree on this existing proposal, our commitment to a new, stronger standard will not be credible. It is a test of our seriousness - and the world is watching us."

ECOFIN did nonetheless adopt a series of conclusions on tax evasion and fraud. According to Irish Finance Minister and meeting chair, Michael Noonan: "This is real progress towards tackling tax evasion and fraud which is an agreed objective of all member states. We strongly support the international move towards automatic exchange of information as the new global standard."

In a joint statement published after the meeting, ministers from Belgium, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the UK reaffirmed that "all member states recognize the importance of taking effective steps to fight evasion and tax fraud." The document further states that ECOFIN "recognises the need for an appropriate combination of efforts at the national, EU and at global levels," and thus supports moves toward the greater use of automatic exchange of information.

Ministers also underlined the "useful role" that can be played by the Commission's Action Plan on evasion, and by its recommendations on aggressive tax planning and good governance in tax matters. They recalled the Council's ongoing work, and acknowledged that member states are implementing existing legal measures, in particular Council Directives for Administrative Cooperation and Mutual Assistance for the Recovery of Claims.

Attendees called on their governments "to consider where appropriate, to what extent their current national legal framework may include a General Anti Avoidance Rule which allows effective action, in compliance with the EU Treaties, against abusive tax arrangements."

Finally, ministers urged incoming EU Presidencies "to work further in order to find the most appropriate ways to tackle tax fraud, tax evasion and aggressive tax planning at national, EU and global level as well as to reinforce efforts in promoting good governance in tax matters to third countries, underlining the importance of strengthening cooperation with the OECD and G20, sharing views, experiences and best practices between member states."

The statement was welcomed by the UK Treasury: "There is now real momentum building towards a step change in the international community's approach to tackling offshore evasion which the government is fully committed to grasp and make a reality as soon as possible. There is strong international consensus forming both in Europe and the G20 to put in place a new global standard on tax transparency."

Commenting Chas Roy-Chowdhury, Head of Taxation for the Association of Chartered Certified Accountants, said: "Europe wide and global efforts to crackdown on the illegal practice of tax evasion is a positive step. However, if the sharing of tax information is going to be used for other reasons that aren't aimed at preventing laws being broken, then we start to get into the realms of 'big brother.'

"It should, by now, be etched into everyone's mind that tax avoidance is within the law, while tax evasion is illegal. If the sharing of tax details amongst EU states of individuals and companies is going to be used for something other than tackling tax evasion, such as a shaming exercise for those who operate well within the law in order to pay less tax, then the EU risks becoming a no go area for the world's business community."

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